Permanent to Contracting using an Umbrella Company

We understand that this isn’t always a choice – while many people choose to contract through an Umbrella company, others are pushed down the route by redundancy or availability of jobs. Whether you have taken the conscious decision to work through an Umbrella or find yourself looking at Umbrella employment without a clear idea what that means, we hope this guide will give you a better understanding of how it all works.

If you expect to be contracting longer-term or will be on a high-income contract, a Limited Company might be the better option for you. Check out our handy guide to Umbrella or Limited if you are unsure.

What is Umbrella employment?

In brief, an Umbrella Company acts as your employer for a series of freelance assignments. As an employer, they provide you with the same rights as a permanent employee – sick pay, maternity pay, holiday pay, insurance, pension and so on.

When they pay you, an Umbrella is responsible for all taxes and National Insurances due. They will also update HMRC with your income and tax details – so if you are only working through an Umbrella, you won’t need to complete a tax return (unless requested by HMRC) or do anything else to keep your tax affairs in order.

The Umbrella acts as an intermediary between you and your client or agency. This means that you hold a contract with the Umbrella and the Umbrella holds a separate contract with the agency or client.

For more in-depth information, have a read of our comprehensive guide to how an Umbrella company works.

What are the first steps?

You will need to register with an Umbrella Company. Fortunately, this is a quick process as they will take care of almost everything for you.

When registering, the Umbrella will need to see ID to prove you have the right to work in the UK. They will also require your personal details and bank details – just like any employer. Finally, you will have to sign a contract of employment. This is a generic contract known as an Overarching Contract of Employment – it allows the Umbrella to employ you for work you do through any agency or client.

What will I need to do once I’m working?

An Umbrella Company is by far the most straightforward way of working as a contractor. Unlike working as a sole trader or through your own Limited Company, the Umbrella takes care of all the administration, invoicing and tax for you.

Once you are set up, you will need to follow the timesheet process set by your agency or client. In some cases, you will need to submit a timesheet to the Umbrella Company too – this allows them to create an invoice. Other agencies are known as ‘self-billing’ agencies – this simply means that you don’t need to submit a timesheet to the Umbrella, because the agency will confirm your hours to them.

If you have expenses to claim back from the client, you will also need to submit these. Again, the process varies – in some cases you will need to submit them to the Umbrella. In other cases, just follow the client’s process and they will do the rest.

That’s it! Umbrella administration will never be more than a timesheet and some expenses each week – and sometimes not even those. If you take additional contracts, just let the Umbrella know your agency’s details and they will take care of the rest.

What happens if I no longer need my Umbrella Company?

You might decide to set up your own Limited Company, or you may find a permanent job. If this is the case, simply let the Umbrella know you need to leave. Once they are sure you have no further income due, they will issue your P45. Easy!

Our award-winning sister company, Contractor Umbrella, are one of the longest-running and most respected names in the industry. If you’d like to know more, give them a call on 01206 761 326.

If you think a Limited Company might be a more suitable option, have a look at our Limited vs. Umbrella guide, give one of our specialist contractor accountants a call on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com.